A specific provision in the income tax laws along with the full deduction or at least a reasonable deduction for the various work from home expenses would be a most welcome relief and justice to the salaried individuals.
Union Budget 2022: Work from home is gradually evolving and could be the future of work and corporate culture. Companies are adapting to the challenges, strategising their culture, technology, process and heavily investing in this new way of working to enable their people to adapt and thrive as well.
Though, there are potential cost savings in the rentals and commuting time, the biggest challenge is to create a focused workspace in the homes of the employees. For this each employee needs a robust technological infrastructure support from the employer. The other incidental costs such as increase in the electricity expenses, work furniture, additional support at home to take care of the household activities have also mounted.
As such owing to the pandemic and to provide a seamless shift to work from home, the companies have extended IT support to the employees either directly or by way of reimbursements such as Desktop monitors, Headphones, Printers, Keyboards, Wireless mouse, USB, other cable adapters, Notebooks and laptops, etc.
This necessary infrastructure provided by the employer for promoting and enhancing the Work from Home environment could also have potential income tax implications. Arguably the prima facie view is that any benefit provided by the employer to meet the employee’s obligations is a taxable perquisite in the hands of the employees. This in turn makes the company responsible to correctly compute the value of perquisite and withhold tax on such perquisites forming part of income under the head salary.
As an example, basis the extant tax laws, any benefit to the employee or to any of his/her household member from any movable asset (other than other than laptops and computers) provided by the employer, shall be taxable as perquisite at 10 per cent per annum of the actual cost of such asset or the amount of hire charges paid by the employer less any recovery from the employees. Apart from this, the reimbursements of the incidental costs of setting up home office (illustrative components mentioned above), such as internet charges, ergonomic chairs and other work furniture could be arguably taxable as a perquisite in the hands of an employee and thereby appropriate taxes should be withheld by the company.
However, the other view which may be considered is that the computer accessories and peripherals cannot be used standalone and form part of the integral computer/laptop systems itself, thereby the same may be excluded from the taxable perquisites, as envisaged in the income tax rules. Moreover, it is pertinent to note that the equipment is being made available to the employees not for their personal use, but due to the need that is arisen considering the pandemic, with no access to office facilities. Again, these facilities are used by the employee to deliver office work, albeit from an external environment. Additionally, there is also an argument to state that but for such work from home there was no obligation of the employee to incur such expenditure. Hence, cannot be considered as the employer bearing an obligation of the employee. It is merely for the execution of the employee’s official duties from a different location.
Further, companies also have a robust work from home policy with terms and conditions to strictly demonstrate the usage of such facilities provided for official purpose. Considering this too, one may say that such benefits provided by the employer should not be taxable, as these are not employee’s obligation but for the performance of duties from a location outside office.
Apart from this, work from home gives rise to a few other scenarios such as, in cases where the employees are working from home and visit office on a critical need basis, then whether the use of car in such a scenario shall be considered as used for partly official or partly personal purpose or wholly for personal purposes. Similarly, will the specific tax exemption apply for the paid meal vouchers provided by the employers, even when the employees are working from home during office hours.
Currently, the employees can only take recourse to arguments such as cars could be used partially for official and partially for personal purpose to avail of the concessional perquisite value or that the time and place for consumption of meals is not specified and hence, the tax-free meal vouchers (for upto INR50 per meal) may continue to be provided.
In the absence of clarity or specified notifications, taxability of such benefits could continue to be a subject matter of doubt and litigation. In this regard, the upcoming Budget could provide the necessary clarifications for taxing such different benefits for working from home, akin to the clarification provided in case of the leave travel concessions for the FY 2020-21, wherein the Government introduced reimbursements (for consuming GST paid goods and services), so that the leave travel allowance exemption does not go unutilized, due to the travel restrictions in pandemic.
Work from home is new and evolving. One can view it as a necessity, because the employees do not have any access to the office facilities and so it is a mandatory commercial expediency for the companies to facilitate working from home office. A specific provision in the income tax laws along with the full deduction or at least a reasonable deduction for the various work from home expenses would be a most welcome relief and justice to the salaried individuals.
(By Parizad Sirwalla, Partner and Head, Global Mobility Services-Tax, KPMG in India)
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